Buzz
Retirement planning strategies are undergoing significant changes in 2024. With new laws and regulations coming into effect, those preparing for retirement must gain a clear understanding of the evolving landscape and adjust their plans accordingly. Regardless of where you stand on your journey to retirement, these updates will affect how much you can set aside for the future.
IRA and 401k Contribution Limits Rise
The IRS has introduced higher contribution limits for IRAs and 401ks in 2024. The contribution limit for 401(k) plans has increased to $23,000, up from $22,500 in 2023. This new limit applies to similar employer-sponsored retirement plans, such as 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan for federal employees.
In 2024, the limit on annual IRA contributions will increase to $7,000, up from $6,500 in 2023. These limits apply to the combined contributions made to both traditional and Roth IRAs each year. This adjustment provides an opportunity for savers to contribute more pre-tax money for retirement. As always, it’s wise to aim to contribute the maximum, if possible.
You can now convert funds from 529 plans into Roth IRAs.
For years, there has been some uncertainty about investing in 529 college savings plans—what happens if you don’t use all the money? As of this year, you can roll over unused funds from a 529 plan into a Roth IRA for your child, free from penalties. This tax-free rollover, introduced under SECURE 2.0, eliminates the 10% penalty typically applied to earnings from leftover 529 funds. You can transfer up to $35,000 from the 529 savings, though the total rollover must also adhere to the annual Roth IRA contribution limits.
There are some important rules to keep in mind: To qualify for the rollover, the 529 savings account must have been in place for at least 15 years. Only funds that have been in the account for five or more years can be rolled over. Additionally, the account holder (usually the child’s parent or guardian) cannot transfer the funds into their own Roth IRA; it must be directed into a Roth IRA specifically set up for the beneficiary of the 529 plan.
If you’re a parent planning to open a 529 savings account, you may want to use online comparison tools to explore different state-by-state offerings. Here’s our guide to opening a 529 plan for your child.
Emergency withdrawals without penalties
In the past, retirement savers facing an “immediate and heavy” financial need could technically take an early distribution from their 401(k) or traditional IRA. However, such withdrawals were subject to income tax, and anyone under the age of 59½ would typically face an additional 10% penalty.
Now, you’re allowed to take one withdrawal of up to $1,000 per year for personal or family emergency expenses, and you won’t have to pay the 10% penalty. All you need to do is "self-certify" that the funds are needed for an emergency.
Note: Individuals who are victims of domestic abuse and are under the age of 59½ can withdraw as much as $10,000 from their 401(k)s or IRAs without incurring the penalty.
Starter 401(k) plans for small businesses
Starting in 2024, Starter 401(k) plans will be available to help small businesses offer retirement options. These simplified plans are designed to reduce costs and lessen administrative burdens for employers. Employees will be able to contribute up to $6,000 annually, and businesses will have until tax season to establish the plans. The goal of the Starter 401(k) is to improve access to retirement savings for employees at small businesses.
As 2024 progresses, those planning for retirement will need to stay on top of these changes. Seeking advice from a financial advisor can help you make the most of increased contribution limits or take advantage of new opportunities like the Roth 529 conversion.
